Oct 19, 2023 - Economy

How Sam Bankman-Fried and other crypto heroes went to zero

Illustration of a coat stand with an eye mask and a cape hanging from different hooks.

Illustration: Aïda Amer/Axios

As revelations pile up in the criminal trial of Sam Bankman-Fried, the cryptocurrency world has been left without any high-profile cheerleaders who might seem worthy of trust or admiration to the general public.

Why it matters: Bankman-Fried, the founder of the now-bankrupt crypto exchange FTX, was, briefly, about as close as anyone to achieving the status of crypto hero. Now that he's finding himself elevated to the highest tier of villains, there's no one left to root for or get behind.

The impact: "People in the world of capital formation and allocation have to be presumed guilty ... until a rigorous and cynical due diligence team can prove them innocent," says Anthony Scaramucci, who sold 30% of his company to Bankman-Fried mere weeks before everything imploded.

Driving the news: Bankman-Fried's criminal fraud trial has revealed that he picked among eight different balance sheets to find the one he wanted to present to lenders, and that he was appropriating billions of dollars in customer funds even before the big crypto crisis of 2022.

  • Bankman-Fried seems likely to go to prison for many years. His key lieutenants at FTX, his crypto exchange, have all pleaded guilty and are acting as witnesses for the prosecution.

Flashback: Before his firm collapsed, Bankman-Fried was a breath of fresh air, one who was easily accessible on Twitter or for press interviews and Congressional lobbying.

  • FTX offered fast trades and extreme leverage; Bankman-Fried also had a made-for-TV rival in the Chinese-born Changpeng Zhao (CZ), founder of rival exchange Binance.
  • Best of all, he spun a tale of altruism — that all his billions were being made only for the betterment of the planet, while he barely bothered to comb his hair.

Between the lines: The allure of Bankman-Fried stood in stark contrast to most previous crypto billionaires.

  • Bitcoin was invented by the pseudonymous Satoshi Nakamoto.
  • The first vaguely legitimate-seeming American bitcoin billionaires were broadly unsympathetic. The Winklevoss twins, of Gemini, could never escape their less-than-propitious portrayal in "The Social Network"; eventually they descended into a messy fight with rival Barry Silbert, of Genesis, which redounded to neither's benefit.
  • Both Gemini and Genesis were charged this morning by New York's attorney general with defrauding more than 230,000 investors of more than $1 billion.

Where it stands: With the SEC having filed 13 charges against CZ and Binance, it's now impossible to find a bitcoin hero.

To be sure: Crypto still seems to be astonishingly hard to kill.

  • "The defining trait of crypto so far has been the bottomless trust of its investors — and it's hard to see how that ever ends," says Bankman-Fried biographer Michael Lewis. "They've been abused over and over again and keep coming back for more."

The bottom line: With no intrinsic utility, cryptocurrency is reliant on social consensus for its value. When the public sees an asset class populated only by fools and knaves, the dream dies — and takes crypto with it.

  • "We all have to be more discerning now," Scaramucci tells Axios.
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